Should SMBs Buy from Incumbents?

Rethinking Communications

Should SMBs Buy from Incumbents?

By Jon Arnold, Principal, J Arnold & Associates  |  July 22, 2015

This is one of those elephant-in-the-room questions that make people uncomfortable. You may think it’s a one-sided issue, but upon further analysis, there’s more to the story. So much of this depends on what your experiences have been, along with what your expectations are for communications technologies going forward.

At one time or another, most of us have been customers of incumbents, and for better or worse, those experiences have shaped how we feel about them now. Before VoIP, this was always a one-sided relationship, where incumbents held all the cards and had no competitors. Of course, that era came to an end in the U.S. with the AT&T (News - Alert) breakup in 1984, but it’s recent enough that most of us remember what that world was like.

Conversely, millennials have known nothing but free or near-free fixed line telephony, and a world where they have choice in virtually everything they do. For this demographic, the concept of an incumbent carrier you love to hate is rather vague, since they don’t think twice about jumping ship to a competitor at the slightest inconvenience.

What’s wrong with buying from incumbents?

Fortunately – or not, depending on your perspective – most millennials are not yet decision-makers, so when it comes to VoIP, the buyers tend to have a history with incumbents. Of course, the upside for millennials is that they don’t carry any legacy baggage, so they may not have a legit reason to be down on incumbents. That’s actually a positive starting point for incumbents, but for the VoIP market, millennials aren’t much of a factor.

For today’s decision-makers – our readers – many will be inclined to buy from anyone but an incumbent, so they’re already working with two strikes against them. This is particularly true among SMBs, who have historically been an afterthought for incumbents. Among all segments of business customers, this is the group most likely to bolt at the first opportunity for telephony.

While SMBs are entitled to believe that incumbents cannot change their stripes, some recent research of mine leads me to conclude that other scenarios are possible. Just because an SMB feels its business has been taken for granted all these years, and that they’ve been overpaying for service, doesn’t mean that all incumbents are evil. In the world of big business, that’s an easy view to support, but exceptions certainly exist.

When it comes to VoIP – hosted VoIP in particular – Verizon (News - Alert) is one such exception. I’ve had a chance to do a briefing with the company about its SMB offering, VCE – Virtual Communications Express. More importantly, I’ve also been briefed directly by one of tits hosted VoIP customers, and reviewed a series of case studies documenting its successes.

Why incumbents need to cater more to SMBs.

We all know that SMBs represent a massive market space; there are some 5.7 million such entities in the U.S. with 500 or fewer employees.

As SMBs start coming around to the virtues of VoIP, this wide range of options empowers them to finally make a break from what seems like an oppressive regime that is ripe for change. To whatever extent this view holds, it can also lead to the mistaken assumption that all VoIP services are created equal, and based on that, they should just go with the lowest price option. Many SMBs are truly price-driven, and in these cases, the incumbents will lose every time.

There are, however, SMBs that buy based on business value, and these are the customers that incumbents are far more interested in keeping – and fighting for. Rather than buy solely on price, their criteria include factors such service quality, network reliability, data security, disaster recovery, enhanced features, integration with other applications, etc.

Incumbents have a lot of business in play here, and Verizon has recognized that this sector has a specific set of needs. For SMBs that buy based on the above factors, incumbents fit the bill as well as – if not better – than any other type of competitor. They may charge a bit more, but the value is there, often in ways that other competitors cannot match. The best example of this would be network reliability, where Verizon is pretty much at the top of the food chain.

Jon Arnold (News - Alert) is principal of J Arnold & Associates, an independent telecom analyst and marketing consultancy with a focus on IP communications, and writes the Analyst 2.0 blog. Previously, he was the VoIP program leader at Frost & Sullivan (News - Alert).

Edited by Dominick Sorrentino